Big response to GMP pilot

The co-op has maintained the size of the pilot program at the targeted 15 million kgMS, about 1% of the co-op's total milk supply, and as a result all applicants were scaled to 40% of their requested kgMS (with a minimum threshold of 10% of a farm's production).

Fonterra's director of commodity risk and trading, Bruce Turner says the uptake from farmers is a positive result for the pilot and the co-op.

"It has given us a broad cross section of famers from right across the country who are at varying stages of their farming operations," said Turner.

"This will allow us to give comprehensive feedback to all shareholders on the benefits and the risks, and this way our farmers can see if it is something that might suit them in the future."

The pilot was launched earlier this year, giving farmers the opportunity to lock in between 10-75% of their milk supply at the opening season's milk price forecast, which was $7.

"We recognise that every farming business is different. And while most farmers can live with the market volatility, there are times when some farmers would prefer more certainty as it would help them manage their own farming businesses and that's why we've developed this pilot.

"GMP is a bit like having a fixed interest rate on your mortgage versus a floating rate. It enables farmers to know exactly where they stand with a percentage of their production and this can help with future planning," said Turner.

As well as more certainty for farmers, GMP also allows the co-op to lock in fixed contract prices with its customers.

"This means even if commodity prices drop and the milk price also drops, those customers will continue to pay the fixed price for their products, which supports the GMP price and means there is no risk to the co-op," said Turner.